The weirdest House of Lords debate ever?

'Lord James of Blackheath: I have given your Lordships three examples of why I think we need something, but the creation of the three Is along the lines that I have been talking about would be of the order of a £5 billion cheque required

1 Nov 2010 : Column 1538

to do it. However, we do not have £5 billion; we do not have half of £5 billion to put in to the creation of this at the moment, so what do we do about it? At this point, I am going to have to make a very big apology to my noble friend Lord Sassoon, because I am about to raise a subject that I should not raise and which is going to be one which I think is now time to put on a higher awareness, and to explain to the House as a whole, as I do not think your Lordships have any knowledge of it. I am sorry my noble friend Lord Strathclyde is not with us at the moment, because this deeply concerns him also.

For the past 20 weeks I have been engaged in a very strange dialogue with the two noble Lords, in the course of which I have been trying to bring to their attention the willing availability of a strange organisation which wishes to make a great deal of money available to assist the recovery of the economy in this country. For want of a better name, I shall call it foundation X. That is not its real name, but it will do for the moment. Foundation X was introduced to me 20 weeks ago last week by an eminent City firm, which is FSA controlled. Its chairman came to me and said, "We have this extraordinary request to assist in a major financial reconstruction. It is megabucks, but we need your help to assist us in understanding whether this business is legitimate". I had the biggest put down of my life from my noble friend Lord Strathclyde when I told him this story. He said, "Why you? You're not important enough to have the answer to a question like that". He is quite right, I am not important enough, but the answer to the next question was, "You haven't got the experience for it". Yes I do. I have had one of the biggest experiences in the laundering of terrorist money and funny money that anyone has had in the City. I have handled billions of pounds of terrorist money.

Baroness Hollis of Heigham: Where did it go to?

Lord James of Blackheath: Not into my pocket. My biggest terrorist client was the IRA and I am pleased to say that I managed to write off more than £1 billion of its money. I have also had extensive connections with north African terrorists, but that was of a far nastier nature, and I do not want to talk about that because it is still a security issue. I hasten to add that it is no good getting the police in, because I shall immediately call the Bank of England as my defence witness, given that it put me in to deal with these problems.

The point is that when I was in the course of doing this strange activity, I had an interesting set of phone numbers and references that I could go to for help when I needed it. So people in the City have known that if they want to check out anything that looks at all odd, they can come to me and I can press a few phone numbers to obtain a reference. The City firm came to me and asked whether I could get a reference and a clearance on foundation X. For 20 weeks, I have been endeavouring to do that. I have come to the absolute conclusion that foundation X is completely genuine and sincere and that it directly wishes to make the United Kingdom one of the principal points that it will use to disseminate its extraordinarily great wealth into the world at this present moment, as part of an attempt to seek the recovery of the global economy.


1 Nov 2010 : Column 1539

I made the phone call to my noble friend Lord Strathclyde on a Sunday afternoon-I think he was sitting on his lawn, poor man-and he did the quickest ball pass that I have ever witnessed. If England can do anything like it at Twickenham on Saturday, we will have a chance against the All Blacks. The next think I knew, I had my noble friend Lord Sassoon on the phone. From the outset, he took the proper defensive attitude of total scepticism, and said, "This cannot possibly be right". During the following weeks, my noble friend said, "Go and talk to the Bank of England". So I phoned the governor and asked whether he could check this out for me. After about three days, he came back and said, "You can get lost. I'm not touching this with a bargepole; it is far too difficult. Take it back to the Treasury". So I did. Within another day, my noble friend Lord Sassoon had come back and said, "This is rubbish. It can't possibly be right". I said, "I am going to work more on it". Then I brought one of the senior executives from foundation X to meet my noble friend Lord Strathclyde. I have to say that, as first dates go, it was not a great success. Neither of them ended up by inviting the other out for a coffee or drink at the end of the evening, and they did not exchange telephone numbers in order to follow up the meeting.

I found myself between a rock and a hard place that were totally paranoid about each other, because the foundation X people have an amazing obsession with their own security. They expect to be contacted only by someone equal to head of state status or someone with an international security rating equal to the top six people in the world. This is a strange situation. My noble friends Lord Sassoon and Lord Strathclyde both came up with what should have been an absolute killer argument as to why this could not be true and that we should forget it. My noble friend Lord Sassoon's argument was that these people claimed to have evidence that last year they had lodged £5 billion with British banks. They gave transfer dates and the details of these transfers. As my noble friend Lord Sassoon, said, if that were true it would stick out like a sore thumb. You could not have £5 billion popping out of a bank account without it disrupting the balance sheet completely. But I remember that at about the same time as those transfers were being made the noble Lord, Lord Myners, was indulging in his game of rearranging the deckchairs on the Titanic of the British banking community. If he had three banks at that time, which had had, say, a deficiency of £1.5 million each, then you would pretty well have absorbed the entire £5 billion, and you would not have had the sore thumb stick out at that time; you would have taken £1.5 billion into each of three banks and you would have absorbed the lot. That would be a logical explanation-I do not know.

My noble friend Lord Strathclyde came up with a very different argument. He said that this cannot be right because these people said at the meeting with him that they were still effectively on the gold standard from back in the 1920s and that their entire currency holdings throughout the world, which were very large, were backed by bullion. My noble friend Lord Strathclyde came back and said to me that he had an analyst working on it and that this had to be stuff and nonsense. He said that they had come up with a figure

1 Nov 2010 : Column 1540

for the amount of bullion that would be needed to cover their currency reserves, as claimed, which would be more than the entire value of bullion that had ever been mined in the history of the world. I am sorry but my noble friend Lord Strathclyde is wrong; his analysts are wrong. He had tapped into the sources that are available and there is only one definitive source for the amount of bullion that has ever been taken from the earth's crust. That was a National Geographic magazine article 12 years ago. Whatever figure it was that was quoted was then quoted again on six other sites on the internet-on Google. Everyone is quoting one original source; there is no other confirming authority. But if you tap into the Vatican accounts-of the Vatican bank-you come up with a claim of total bullion-

Lord De Mauley: The noble Lord is into his fifteenth minute. I wonder whether he can draw his remarks to a conclusion.

Lord James of Blackheath: The total value of the Vatican bank reserves would claim to be more than the entire value of gold ever mined in the history of the world. My point on all of this is that we have not proven any of this. Foundation X is saying at this moment that it is prepared to put up the entire £5 billion for the funding of the three Is recreation; the British Government can have the entire independent management and control of it-foundation X does not want anything to do with it; there will be no interest charged; and, by the way, if the British Government would like it as well, if it will help, it will be prepared to put up money for funding hospitals, schools, the building of Crossrail immediately with £17 billion transfer by Christmas, if requested, and all these other things. These things can be done, if wished, but a senior member of the Government has to accept the invitation to a phone call to the chairman of foundation X-and then we can get into business. This is too big an issue. I am just an ageing, obsessive old Peer and I am easily dispensable, but getting to the truth is not. We need to know what really is happening here. We must find out the truth of this situation.'

I know the above just looks bizaare but it is in Hansard 1 Nov 2010 : Column 1538

Why has this not been reported in the press or anywhere in the UK media? The only place that I have seen this is in a piece by Charlie Stross.

I am confused and befuddled by what Lord James of Blackheath was suggesting, can you make sense of it?

A difference in reporting

Moody's Investors Services released a report on the financial position of major AAA rated governments and I was interested to read two rather different accounts of what it said. The financial specialists at Bloomberg reported the headline news as

"The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.

The governments of the two economies must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly, Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.

Under the ratings company’s so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report.

“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.” "

However the BBC reported the news thus:

"The credit ratings of major AAA governments, including the US and the UK, are well positioned, says Moody's Investors Services.

Moody's released a report on the financial position of major AAA rated governments.

This includes the four largest - Germany, France, the UK and the US - as well as smaller ones, including Spain.

The report will reassure the bond markets about the ability of the US and the UK to make future debt payments.

A key finding is that the AAA ratings of the UK and the US are secure because of the capability of their respective governments to reverse recent deficits. "

Both accounts cannot be correct and I think I would rather believe the account of the unbiased Bloomberg than the pro-Labour spin of the BBC in the run-up to a general election.

A reminder of Gordon Brown's views before the banking crisis

Every time Gordon Brown spouts on about banking responsibility and how he always wanted more regulation of banking do realise that he is talking crap. Back in October I blogged about Gordon Brown's Mansion House speech in June 2007. Do read the whole of my piece but here are some extracts from Gordon Brown's speech that highlight this:

"Over the ten years that I have had the privilege of addressing you as Chancellor, I have been able year by year to record how the City of London has risen by your efforts, ingenuity and creativity to become a new world leader.

...

So I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.

...

I believe it will be said of this age, the first decades of the 21st century, that out of the greatest restructuring of the global economy, perhaps even greater than the industrial revolution, a new world order was created.

...

So let me say as I begin my new job, I want to continue to work with you in helping you do yours, listening to what you say, always recognising your international success is critical to that of Britain's overall and considering together the things that we must do - and, just as important, things we should not do - to maintain our competitiveness:

* enhancing a risk based regulatory approach, as we did in resisting pressure for a British Sarbannes-Oxley after Enron and Worldcom..."

Banking news

The Accounting Standards Board (ASB) have an interesting press release on their website. The ASB announce that they are to issue Amendments to Permit Reclassification of Financial Instruments. Sounds exciting doesn't it? Well in fact it is. The announcement in fact tells the world that the

"Accounting Standards Board (ASB) approved amendments to FRS 26 (IAS 39) ‘Financial Instruments: Recognition and Measurement’ and FRS 29 (IFRS 7) ‘Financial Instruments: Disclosures’ that would permit the reclassification of certain financial instruments."

What amendments? There are two:

"The amendments permit the reclassification of:

* certain held-for-trading non-derivative financial assets out of the Fair Value Through Profit or Loss (trading) category in rare circumstances. What is meant by ‘rare’ is not dealt with in the amendments, but in its press release of 13 October, the IASB notes that the deterioration of the world’s financial markets that has occurred during the third quarter of the year is a possible example of rare circumstances; and

* certain financial assets to the loans and receivables category (and so measured on a cost basis) if the entity has the intention and ability to hold them for the foreseeable future or until maturity."

I think some explanation is in order.
I have blogged before that the requirement to "mark to market" on a daily basis has exacerbated some of the market falls we have experienced over recent weeks. This amendment means that financial entities will have a one-off opportunity to reclassify certain financial instruments (not derivatives) as non-trading (held to maturity) with a value which can be backdated as far back as 1 July.

Any financial entity that takes advantage of this amendment should benefit from being able to avoid large daily fluctuations on their Profit and Loss account and the markets will benefit from a break in the downward spiral caused by panic resulting from the "losses" arising from daily "marking to market".


This amendment first came to my attention Accountacy Age three weeks ago when I read that

"EU finance ministers have reiterated calls for banks to be allowed to reclassify assets in line with current US practice."

If you want more information on this matter then I suggest a read of the relevant page on the IASB's website and if you want some commentary then Accountancy Age's report on Lord Turner's FT interview may also be of interest.

Gordon Brown and the age of irresponsibility (part 2)

Following my last post, people have said to me "Goaty, but this plan wasn't about financial services but the general economy; maybe we should give Gordon Brown the benefit of the doubt, maybe he always was worried about a lack of City regulation." That is a point, it's wrong of course, but it is a point.

From The Treasury website comes the text of Gordon Brown's Mansion House speech in June 2007. Here are some extracts (my emphasis):

"Over the ten years that I have had the privilege of addressing you as Chancellor, I have been able year by year to record how the City of London has risen by your efforts, ingenuity and creativity to become a new world leader.

Now today over 40 per cent of the world's foreign equities are traded here, more than New York:

* over 30 per cent of the world's currencies exchanges take place here, more than New York and Tokyo combined,
* while New York and Tokyo are reliant mainly on their large American and Asian domestic markets, 80 per cent of our business is international, and
* in a study last week of the top 50 financial cities, the City of London came first.

So I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.

And I believe the lesson we learn from the success of the City has ramifications far beyond the City itself - that we are leading because we are first in putting to work exactly that set of qualities that is needed for global success:

* openness to the world and global reach,
* pioneers of free trade and its leading defenders,
* with a deep and abiding belief in open markets,
* champions of diversity in ownership and talent, and of flexibility and adaptability to change, and
* a basic faith that from wherever it comes and from whatever background, what matters is that the talent, ingenuity and potential of people is harnessed to drive performance.

And I believe it will be said of this age, the first decades of the 21st century, that out of the greatest restructuring of the global economy, perhaps even greater than the industrial revolution, a new world order was created.

...

So let me say as I begin my new job, I want to continue to work with you in helping you do yours, listening to what you say, always recognising your international success is critical to that of Britain's overall and considering together the things that we must do - and, just as important, things we should not do - to maintain our competitiveness:

* enhancing a risk based regulatory approach, as we did in resisting pressure for a British Sarbannes-Oxley after Enron and Worldcom...

...

The financial services sector in Britain and the City of London at the centre of it, is a great example of a highly skilled, high value added, talent driven industry that shows how we can excel in a world of global competition. Britain needs more of the vigour, ingenuity and aspiration that you already demonstrate that is the hallmark of your success."

Remember these extracts the next time a Labour mouthpiece makes spurious claims.

Financial meltdown

Fannie Mae's shares have fallen 87% since October, losing $63bn in value.

If Fannie Mae and Freddie Mac fail completely and the US Treasury has to rescue them, it is feared that the pair's liabilities would double the US Treasury's outstanding debt load and maybe raise concerns about the AAA sovereign rating of the US itself.

Meanwhile, Lehman Brothers shares fell 22% following the company reporting that the bank still has $41bn of mortgage debt and other "toxic" Level III assets.

I don't think that "meltdown" is too strong a word to describe what is happening in the US and don't think that it won't come to the UK as well. There are several UK banks getting very close to the end-game.

Oil prices drop

Xinhuanet report that:

"Crude futures dropped sharply Monday as fears of a conflict in the Middle East eased over the weekend.

Light, sweet crude for August delivery fell 3.92 U.S. dollars to settle at 141.37 dollars a barrel on the New York Mercantile Exchange.

The European Union (EU) foreign policy chief Javier Solana said Monday that he hopes to meet Iran's top nuclear negotiator later this month. According to Iranian state media's report on Friday, EU and Iran have agreed to take a series of talks during the second half of July over Iran's nuclear program. Last week the concern about the tension in the Middle East has driven up the oil price and a record high of 145.29 dollars a barrel was reached on Thursday.

OPEC President Chakib Khelil Sunday told an energy conference in Algiers that the weak dollar should be blamed for the recent increase of oil prices. He said he believes that the series of interest rate cuts in the past year has resulted in the falling of the dollar against other major currencies.

In London, Brent crude for August delivery dropped 2.55 dollars to settle at 141.87 dollars a barrel on the ICE Futures Exchange. "

Maybe the speculators' "one way ticket" is running out!

Destroying the last great UK industry

The "City of London" accounts for around 17% of the UK's GDP and the EU hate the success of the "City". The "City" works because it nicely splits the time zone difference between New York and Tokyo, because the local language is Englisha and because regulation is light. The "Big Bang" of 1986 turned the "City" into an economic powerhouse and one that attracts the brightest traders and "quants" from all over Europe, the US and Japan. Walk into a City Investment Bank and you will see American, French, German, Swiss and, if it is a Japanese institution, Japanese bankers all working ridiculous hours and earning money that they spend mostly in London and the rest of the UK. The French and the Germans have long envied London's financial clout and resent the fact that Frankfurt and Paris are not in the same league. So the EU plans to destroy the competitive advantage of "The City" under the guise of fairness but really out of jealousy. This will not aid Paris and Frankfurt, as the business and the bankers with their very portable talents will instead move to New York, Singapore, Hong Kong and Tokyo.


The Telegraph reports that:

"A confidential document prepared for the gathering in Brussels finds the "short-term" pay structure of modern capitalism has become deformed, causing firms to take on "excessive risk" without regard to the interests of stakeholders or society.... ministers are eyeing curbs on stock options, bonuses and golden parachutes.

The move is a clear sign that the EU noose is tightening on bankers, funds and corporate elites that have enjoyed light-touch regulation.

Today's meeting is being held under the auspices of the Eurogroup, the quasi-official club of eurozone finance ministers. The forum excludes Britain and free market allies from Eastern Europe.

Shutting out Chancellor Alistair Darling enables Berlin and Paris to create a head of steam behind possible legislation that could undermine London's competitiveness as the world's leading financial centre....

Ruth Lea, director of Global Vision, said critics of the City have seized on the credit crisis and Britain's current travails to ram through changes that extend EU power over economic policy.

"Brussels has been waiting for this moment. It is typical that they should hold the meeting in the Eurogroup so they can lay out all the groundwork in advance. It is the classic thin-end-of-the-wedge method. None of these new proposals is going to help Europe: they will simply drive business to Hong Kong, Singapore and the States," she said."

The EU socialist agenda moves on apace and we cannot stop it, the only solution is leaving the EU whilst we still can; and that is probably within the next two to three years.